What Is a Fee Only Retirement Planner?
Planning for retirement can seem like an overwhelming process, from considering whether to plan your own retirement to how to choose a retirement planner. You may have heard conflicting advice from friends or family who have used a variety of financial professionals to help them plan for retirement, such as stockbrokers or insurance agents, and be wondering how to choose a retirement planner for yourself.
This may help:
What “Fee Only” Means
At a fee-only wealth management firm, the firm can only receive money from clients directly. There are no hidden costs in the financial plan, and there are no incentives or commissions for any recommendations they make.
This fee arrangement is different from how other financial professionals are compensated. For example, insurance agents receive commissions from selling insurance products, while some investment managers may receive kickbacks for recommending certain investment products.
The goal of fee-only planning is to remove any outside incentives from the financial planning process. Even well-intentioned professionals not working on a fee-only basis will be aware of the possibility of recommending alternative and potentially inferior products or investment strategies to increase their own earnings.
With fee-only retirement planning, an advisor makes no money from any of his or her recommendations. Clients pay the advisor for exactly one thing: Independent, objective financial management and advice.
This type of fee transparency ensures that clients and their retirement planners are always working for the same goal: The development and implementation of a financial plan that allows you and your family to accomplish your retirement goals and objectives.
Fee only retirement planners might charge fees based on a percentage of Assets Under Management with that firm (as long as the firm does not receive any benefit from recommending certain investment strategies or investment products). They might also charge retainer fees, which are flat, predetermined costs for a client to use their services. Retainer fees are often determined based on the amount of effort involved to provide the necessary services based on each client’s individual need.
Understanding Financial Fiduciary Responsibilities
Financial fiduciary is the highest level of legal duty one party can owe to another, and it is the level of care that Registered Investment Advisors (RIAs) and fee-only financial planners provide. With fiduciary responsibility, the advisor is required to put clients’ needs above his or her own opportunities to profit. For example, RIAs must make investment decisions that they believe will be most advantageous for their clients’ financial plans, even if the decision does not benefit the RIA in any way.
In contrast, investment professionals like broker-dealers are generally held to the less rigorous “suitability” standard of care. This duty means that as long as an investment recommendation or strategy is “suitable” for the client, brokers can profit from the transaction, and they do not need to put their clients’ interests above their own.
Understanding the legal protections provided through fiduciary responsibility will help you find professionals who can offer you the greatest confidence that your financial plan will be treated with utmost care and attention.
Certification of Retirement Planners
The industry standard for personal financial planning is the Certified Financial Planner designation. Any retirement planner you work with should have this professional designation at a minimum.
Fee-only financial planners should also be members of the National Association of Personal Financial Advisors (NAPFA). This is the largest professional association for fee-only financial planners. Members of NAPFA cannot charge clients in any way except visible fees that adhere to a fiduciary responsibility to the firm’s clients.
What Retirement Planners Do
Retirement planners perform a wide range of tasks, depending on the complexities and details of their clients’ assets, net worth and types of investments, income needs during retirement, and how the client would like to incorporate other areas of their financial plan into their retirement plan.
An often-overlooked reality of fee-only retirement planning is that it involves far more than just managing a client’s retirement accounts. Effective retirement planners should incorporate all parts of their client’s financial life into the client’s retirement plan, including asset allocation strategies (such as reducing the client’s risk profile upon retirement), recommendations for income and gift tax strategies, insurance needs assessments, and estate and legacy planning.
Retirement planners can also help clients reduce stress from financial uncertainty by developing models that give clients reasonable projections for what they can safely spend during their retirement years, as well as projections for cost-of-living increases over time. They can also help ensure that clients’ beneficiary designations are appropriate and help clients withdraw their annual Required Minimum Distributions (RMDs) from their tax-deferred retirement accounts once the client turns 70-½.
Finally, retirement planners can help coordinate clients’ retirement plans with their estate plans. They may work with estate attorneys to develop an estate plan that will ensure assets pass on to clients’ loved ones or to another cause exactly as the client desires, while minimizing tax implications and administrative burdens for the clients’ beneficiaries.
When to Begin Planning for Retirement
There is no such thing as “too soon” to begin planning for retirement. Everyone can benefit from a personalized and high-quality plan from a fee-only retirement planner. The planner may suggest adjustments to the client’s investment strategies, spending requirements, insurance policies or countless other aspects of their clients’ financial lives. As a result, retirement planning can offer unparalleled peace of mind to clients at any stage in life.
Financial Freedom has provided fee-only retirement planning for more than 30 years. Read these client stories to learn more about how we have helped people like you:
Contact us to set up a no-strings-attached conversation to see how we can help.
Filed Under: Comprehensive Financial Planning